One of the most positive aspects of the Nyse Euronext deal is the fact that it opened doors to new markets. However, are American foreign financial policies closing doors for Nyse Euronext? Many people in the business world have noticed a trend of companies either pondering delisting and deregistering their corporations or are actively in the process of doing so. Companies that previously would have been eager to list in American markets are now being discouraged from doing so. Many economists attribute this to the Sarbanes – Oxley Act ( SOX ) . Some see SOX as detrimental to the health of Nyse Euronext by stifling business. Others seem to think that trends actually disprove the notion that SOX is having such an effect. So is SOX really chasing away foreign companies from doing business with Nyse Euronext, or are we being paranoid?
Many economists and analysts have been expressing that SOX is really having a negative impact on business. This act was put in to place in 2002 when President Bush passed the comprehensive financial code of laws. The act came in the wake of the Enron scandal and it was an act meant to protect the people. Yet, It has seemingly turned into a bureaucratic cumbersome entity which is stifling the growth attributed to globalization. While companies from developing nations benefit from a better credit rating and stronger credibility, already well established nations (who already have sufficient transparency laws in place) do not benefit from administrative cost of SOX which is considered a drag on the productivity of capital ” It imposes severe costs on companies and their managers, especially through the compliance requirements. An FEI of companies with average revenues of $5 billion pegged the average 404-compliance cost alone at $4.36 million.” and 94 percent–said the cost of compliance exceeded the benefits.”. There is also another school of thought which actually rejects the notion of SOX being detrimental and they point to many factors including trends which point to the contrary.
Although the idea of SOX having a negative impact on Nyse Euronext is consistently gaining in popularity, there is another side of the story. If Sarbanes – Oxley were detrimental the following would not be true. However these trends do indeed contradict the theory that SOX is stifling Nyse Euronext:
“For this popular explanation to be correct, it would have to be that firms that would have chosen to list in the U.S. before SOX are no longer willing to do so. Our paper shows that:
(1) Foreign listings have fallen in London as well as in New York, except for listings on the AIM exchange in London. This decrease in London listings is inconsistent with the view that SOX made London more attractive for listings in comparison with the New York exchanges.
(2) The growth in listings on the AIM exchange cannot be attributed to foreign firms choosing to list on AIM instead of in the U.S. because the typical firm listing on AIM is very small compared to firms listing on U.S. exchanges.
(3) If SOX had made it unattractive for some firms to list on exchanges in the U.S., we would expect that the characteristics of firms listing in the U.S. would have changed. They have not.
(4) Using a benchmark model which explains foreign listings in the 1990s, there is no evidence that there are fewer firms listed after SOX than we would expect had SOX not become law.
(5) Foreign firms listed on U.S. exchanges are valued more highly than comparable firms not listed on U.S. exchanges. There is no evidence that this valuation premium has changed since SOX.
Cross-listing in the U.S. has a governance benefit for foreign firms because they are subjected to U.S. laws and regulations and are monitored by U.S. capital market intermediaries.” So it would seem that maybe SOX is not as bad as some would have you believe.
The two sides of the SOX Nyse Euronext debate clearly both have valid points. For that reason it is safe to assume that we will still be unclear on this issue for some time to come. However, a cloud of doubt will always loom over Nyse Euronexts head until we see some more definitive data which proves this notion either one way or the other.
For more info on Sarbanes Oxley www.wallstreetuniversity.blogspot.com
http://blogs.law.harvard.edu/corpgov/2007/07/18/has-sox-made-new-york-less-competitive-in-global-markets/#more-189
http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act
No comments:
Post a Comment